April 28 -- Mars Inc. agreed to purchase Wm. Wrigley Jr. Co. for $23 billion, with financing from Warren Buffett's Berkshire Hathaway Inc., combining the world's biggest maker of chewing gum with the producer of M&Ms chocolate.
Wrigley, with $5.39 billion in sales in 2007, surged 23 percent in New York trading today after the companies said Mars would pay $80 for each Wrigley share. Mars, which generates $22 billion in annual revenue, is offering 28 percent more than Wrigley's closing price on April 25.
Uniting Mars, which also makes Snickers, and the 117-year- old Wrigley creates a company to compete with chocolate maker Hershey Co. and Cadbury Schweppes Plc, the world's largest candy maker. U.S. confectionary companies are exploring combinations as competition intensifies and milk and sugar prices rise. Gum has higher margins than chocolate and is growing faster, Mirabaud Securities analyst Julian Lakin said.
``There's really nothing that can go wrong with something like the Wrigley and Mars brands,'' Buffett, Berkshire's billionaire chief executive officer, said today in an interview on the CNBC television network. ``People are eating more and more of their products every day.''
The purchase will be financed with $11 billion from Mars, $4.4 billion from Berkshire and $5.7 billion from Goldman Sachs Group Inc. Berkshire will also buy a $2.1 billion stake in the Wrigley unit once the purchase is completed.
Wrigley jumped $14.14 to $76.59 at 10:27 a.m. in New York Stock Exchange composite trading. The shares had gained 6.7 percent this year before today. McLean, Virginia-based Mars is closely held.
`Great Price'
``It's a great price,'' said Thomas Burnett, director of research at New York-based Wall Street Access. ``Nobody is going to pay more than that. Who is going to go up against Mars and Buffett?'' He doesn't own shares of Wrigley or Berkshire.
Sales at Wrigley may rise 9 percent this year, the slowest pace since 2000, according to the average estimate of nine analysts surveyed by Bloomberg. Competition from London-based Cadbury's Trident and Dentyne gums in the U.S. has eroded its market share. Cadbury, the maker of Dairy Milk chocolate, bought Pfizer Inc.'s Adams candy unit for $4.2 billion in 2003 to become the world's second-largest maker of chewing gum.
Since November 2006, Mars has been winning market share in the U.S., while Hershey's has dropped, Alexia Howard, a Sanford C. Bernstein analyst who recommends investors sell Hershey, wrote in an April 11 note to investors.
`Strategic Sense'
``The deal appears to make strategic sense for Mars as it would give the global confection leader even greater scale as well as global distribution,'' Eric Katzman, an analyst with Deutsche Bank Securities Inc., wrote in a research note today before the announcement. Other companies may be forced to consider a merger, he said.
The trust that controls Hershey discussed ways to merge the chocolate company with Cadbury in a way that wouldn't decrease the trust's ownership, the Wall Street Journal reported last year. Cadbury will split off its U.S. drinks unit May 7 and begin trading as two separate companies: Cadbury Plc in London and Dr Pepper Snapple Group in the U.S.
Hershey rose as much as 7.3 percent in New York trading, while Cadbury climbed 2.4 percent in London.
In 2006, Wrigley named former Nike Inc. chief William Perez president and CEO, the first person outside the Wrigley family to head the company.
Gum Growth
Gum is the ``fastest-growing sector,'' said Lakin, who is based in London and recommends investors ``hold'' Cadbury stock. ``The consumer finds it attractive because it's mostly calorie free. This could give Cadbury a tough time.''
William Wrigley Jr. began selling soap in Chicago in 1891 and eventually turned to chewing gum, an item he was giving away for free with each sale, according to Wrigley's corporate Web site. He introduced Juicy Fruit and Wrigley's Spearmint in 1893, two brands the company still sells today.
Mars, founded in 1911 by Frank C. Mars, is still family owned. The company gets about 45 percent of revenue from chocolates and other snacks. Its biggest division is pet food, which sells Whiskas cat food and Pedigree for dogs, and accounts for 46 percent of sales, according to the company's Web site.
Berkshire Hathaway, based in Omaha, Nebraska, has about $40 billion to spend on acquisitions. Buffett, 77, has built Berkshire over four decades from a failing textile maker into a $195 billion holding company with businesses ranging from candy making to insurance.
Berkshire has stakes in companies including Coca-Cola Co. and Buffett ranks as the world's richest person, according to Forbes magazine.
Additional financing as well as advice is coming from JPMorgan Chase & Co, Mars said. Simpson Thacher & Bartlett LLP is acting as its legal counsel.
Goldman Sachs and William Blair Inc. provided Wrigley with financial advice. Skadden, Arps, Slate, Meagher & Flom, LLP served as legal adviser.
Wrigley, with $5.39 billion in sales in 2007, surged 23 percent in New York trading today after the companies said Mars would pay $80 for each Wrigley share. Mars, which generates $22 billion in annual revenue, is offering 28 percent more than Wrigley's closing price on April 25.
Uniting Mars, which also makes Snickers, and the 117-year- old Wrigley creates a company to compete with chocolate maker Hershey Co. and Cadbury Schweppes Plc, the world's largest candy maker. U.S. confectionary companies are exploring combinations as competition intensifies and milk and sugar prices rise. Gum has higher margins than chocolate and is growing faster, Mirabaud Securities analyst Julian Lakin said.
``There's really nothing that can go wrong with something like the Wrigley and Mars brands,'' Buffett, Berkshire's billionaire chief executive officer, said today in an interview on the CNBC television network. ``People are eating more and more of their products every day.''
The purchase will be financed with $11 billion from Mars, $4.4 billion from Berkshire and $5.7 billion from Goldman Sachs Group Inc. Berkshire will also buy a $2.1 billion stake in the Wrigley unit once the purchase is completed.
Wrigley jumped $14.14 to $76.59 at 10:27 a.m. in New York Stock Exchange composite trading. The shares had gained 6.7 percent this year before today. McLean, Virginia-based Mars is closely held.
`Great Price'
``It's a great price,'' said Thomas Burnett, director of research at New York-based Wall Street Access. ``Nobody is going to pay more than that. Who is going to go up against Mars and Buffett?'' He doesn't own shares of Wrigley or Berkshire.
Sales at Wrigley may rise 9 percent this year, the slowest pace since 2000, according to the average estimate of nine analysts surveyed by Bloomberg. Competition from London-based Cadbury's Trident and Dentyne gums in the U.S. has eroded its market share. Cadbury, the maker of Dairy Milk chocolate, bought Pfizer Inc.'s Adams candy unit for $4.2 billion in 2003 to become the world's second-largest maker of chewing gum.
Since November 2006, Mars has been winning market share in the U.S., while Hershey's has dropped, Alexia Howard, a Sanford C. Bernstein analyst who recommends investors sell Hershey, wrote in an April 11 note to investors.
`Strategic Sense'
``The deal appears to make strategic sense for Mars as it would give the global confection leader even greater scale as well as global distribution,'' Eric Katzman, an analyst with Deutsche Bank Securities Inc., wrote in a research note today before the announcement. Other companies may be forced to consider a merger, he said.
The trust that controls Hershey discussed ways to merge the chocolate company with Cadbury in a way that wouldn't decrease the trust's ownership, the Wall Street Journal reported last year. Cadbury will split off its U.S. drinks unit May 7 and begin trading as two separate companies: Cadbury Plc in London and Dr Pepper Snapple Group in the U.S.
Hershey rose as much as 7.3 percent in New York trading, while Cadbury climbed 2.4 percent in London.
In 2006, Wrigley named former Nike Inc. chief William Perez president and CEO, the first person outside the Wrigley family to head the company.
Gum Growth
Gum is the ``fastest-growing sector,'' said Lakin, who is based in London and recommends investors ``hold'' Cadbury stock. ``The consumer finds it attractive because it's mostly calorie free. This could give Cadbury a tough time.''
William Wrigley Jr. began selling soap in Chicago in 1891 and eventually turned to chewing gum, an item he was giving away for free with each sale, according to Wrigley's corporate Web site. He introduced Juicy Fruit and Wrigley's Spearmint in 1893, two brands the company still sells today.
Mars, founded in 1911 by Frank C. Mars, is still family owned. The company gets about 45 percent of revenue from chocolates and other snacks. Its biggest division is pet food, which sells Whiskas cat food and Pedigree for dogs, and accounts for 46 percent of sales, according to the company's Web site.
Berkshire Hathaway, based in Omaha, Nebraska, has about $40 billion to spend on acquisitions. Buffett, 77, has built Berkshire over four decades from a failing textile maker into a $195 billion holding company with businesses ranging from candy making to insurance.
Berkshire has stakes in companies including Coca-Cola Co. and Buffett ranks as the world's richest person, according to Forbes magazine.
Additional financing as well as advice is coming from JPMorgan Chase & Co, Mars said. Simpson Thacher & Bartlett LLP is acting as its legal counsel.
Goldman Sachs and William Blair Inc. provided Wrigley with financial advice. Skadden, Arps, Slate, Meagher & Flom, LLP served as legal adviser.
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